Breakthrough Nears on Tapping Offshore Energy Supply

In a season of political gridlock, a breakthrough could be near on legislation to promote energy production off the nation’s coastlines.

A bipartisan energy bill now being crafted in the Senate could hit a sweet spot between expanding offshore oil and gas drilling, which many Republicans want, and creating incentives for new offshore wind and tidal power, which many Democrats want. It could also create a new source of revenue for the nation’s 24 coastal states—a tempting prospect for many cash-strapped state governments.

Energy has emerged in recent years as a hot-button political and economic issue, as the nation suffered from record-high gasoline prices in 2008, reeled from the Gulf of Mexico oil spill in 2010, and clashed over how to tackle the controversial problem of climate change. But it’s been five years since Congress has actually passed a comprehensive energy bill. Indeed, the high-profile politicization of energy issues has often appeared to make it more difficult to actually write and pass energy policy.

The Murkowski-Landrieu-Wyden bill has the potential break that logjam—and to allow both Democrats and Republicans to actually claim that they are moving an “all-of-the-above” energy bill. Both sides spent 2012 touting that energy slogan on the campaign trail.

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The new bill relies on an old idea with some fresh tweaks. Its central proposal is to allow coastal states to receive a share of the money generated when energy—of any kind—is produced in federally owned waters off their shores. Currently, with one exception, when an oil or gas company drills offshore in federal waters, it must pay a hefty 18.75 percent of the value of the fuel that it produces to the federal government. Last year, offshore drilling royalties sent $5.2 billion flowing to the Treasury.

In 2006, Landrieu sponsored a bill that would have opened up new portions of the Gulf of Mexico for drilling and sent 37.5 percent of the money set aside for the U.S. government to Gulf Coast states instead of the Treasury. The idea was that the money would be used to help the Gulf Coast rebuild and restore its coastal wetlands after the devastation of Hurricane Katrina.

Now Landrieu and Murkowski, whose own home state also relies heavily on the oil industry, want to apply that revenue-sharing formula to the entire U.S. coastline. The idea is that it would create an alluring incentive for states to open up their coasts for drilling, knowing that along with oil and gas rigs, they’d get a new revenue stream — as much as an estimated $500 million a year. There has actually long been strong bipartisan support in Congress for the idea of revenue-sharing. In 2006, Landrieu’s bill passed the Senate on an overwhelming vote of 71-25.

For years, the biggest obstacle to revenue-sharing legislation was former Senate Energy and Natural Resources Chairman Jeff Bingaman, D-N.M., who retired from Congress last year. Bingaman fiercely opposed revenue-sharing as a concept that would divert much-needed federal revenue to state coffers.

But Wyden, the new Energy chairman, hails from a coastal state that could benefit from the proposal. His idea is to write the bill in such a way that it would also promote renewable energy and environmental conservation. It would allow states to take in a percentage of revenue from generating electricity with offshore wind farms, and it would set aside a portion of that money for environmental restoration and conservation.

“There’s an opportunity to knit together a coalition of people interested in federal lands and federal waters, of people interested in job creation and protecting the environment,” Wyden told National Journal.

Even with new provisions promoting renewable energy and conservation, ardent environmentalists oppose any plan to promote new offshore drilling.

California Democratic Sen. Barbara Boxer, who heads the Senate Environment and Public Works Committee, said she will never support the idea. “When you encourage offshore drilling, you set up a whole industry for disaster,” she told NJ.

But some moderate, coastal-state Democrats say they’re open to the idea, particularly if the bill is written in a way that it would allow individual states to use the incentives to promote wind energy and conservation, but not to expand drilling.

“I’m open to it,” said Democratic Sen. Jeanne Shaheen of New Hampshire. “It’s a way to provide additional incentives for renewable energy and conservation. This is something that has the potential to get real bipartisan support.”

For its part, the oil industry, which has long pushed for a revenue-sharing bill, says it has no problem with a proposal that would also promote renewable energy and conservation—particularly if it would help the broader bill get through.

“If you’re increasing access to different offshore resources, that’s a positive thing,” said Brian Straessle a spokesman for the American Petroleum Institute, the oil industry’s lobbying arm.

Straessle and others say the shift in the Energy Committee leadership—from Bingaman to Wyden—appears to have created serious movement for the proposal.

“There’s a shift at the top of the committee, and that’s changed how they’re moving on a bunch of issues, including this,” he said.